Why Osborne should be applauded for his business rate devolution proposal

One of the biggest surprise announcements from today’s Autumn Statement – aside from the Chancellor’s spectacular U-turn on tax credits – was the decision to hand local councils full control of business rates. But it was a welcome one, too: devolving rates should deter excessive spending and stimulate competition between councils, while encouraging local government to be more responsive to business needs.

When the Chancellor first mentioned devolution during his Conference speech in October, over 60 per cent of IoD members came out in favour of the policy. The devil is in the detail of course, but at face value it’s hard to see a downside to the policy. Some have pointed to the potential for geographic disparities, but those rural communities likely to have the smallest rates receipts are predominantly run by fiscally responsible Tory councils.

Others suggest that local mayors will succumb to the temptation to hike rates (currently, the uniform business rate is set at 49.3 per cent of a non-domestic property’s free-market rental in England and 48.2 per cent in Wales) to raise revenues without the consent of the local landowners. The assumption – or hope – is that accountability to their local electorate will help them resist.

But while business rates have long been criticised by businesses (and any cut welcomed), it is important to note that it’s not occupiers that end up shouldering the financial burden but landowners. So the notion than business rates cuts, as a result of devolution, could bring business into an area is a misconception: business rates cuts lead to rent rises in almost exact proportion.

And business leaders will need to be better engaged with local government to ensure councils are fiscally responsible. For example, city-wide mayors will be given the power to levy a business rates premium for local infrastructure projects, and as such businesses will need to make sure their views are properly voiced through their Local Enterprise Partnership.

From now on, it looks like businesses are going to get the local government they deserve


The Sun told a porky pie, and here’s why it doesn’t matter

One of the points Owen Jones makes in The Establishment is that our country’s media is scandalously bent in favour of the free-market ideologues that monopolise newspaper ownership:

“Whereas just 36 per cent of voters opted for the Tories at the 2010 general election, 71 per cent of newspapers by circulation backed David Cameron’s party.”

Jones’s argument is that this lack of democratic accountability allows Rupert Murdoch and co. to wreak havoc on public opinion, leading astray the gullible and politically illiterate general populace.Read More »

So they’ve worked out how to do the propaganda then

This is not quite what people seem to think it is. The report seems to show that people are happy with restrictions and taxes if they are for the common good. Thus we should go and tax meat. But that’s really not quite what is actually being said:

Taxing meat to simultaneously tackle climate change and improve global health would be far less unpalatable than governments think, according to new research.

Meat production produces 15% of all greenhouse gases – more than all cars, trains, planes and ships combined – and halting global warming appears near impossible unless the world’s fast growing appetite for meat is addressed.

The new analysis says this could be done through taxes, increasing vegetarian food in schools, hospitals and the armed forces and cutting subsidies to livestock farmers, all supported by public information campaigns.

The research, from the international affairs thinktank Chatham House and Glasgow University, involved surveys and focus groups in 12 countries and found that even measures restricting peoples’ behaviour could be accepted if seen as in the public interest, as was seen with smoking bans.

“Governments are ignoring what should be a hugely appealing, win-win policy,” said lead author Laura Wellesley, at Chatham House.

“The idea that interventions like this are too politically sensitive and too difficult to implement is unjustified. Our focus groups show people expect governments to lead action on issues that are for the global good. Our research indicates any backlash to unpopular policies would likely be short-lived as long as the rationale for action was strong.”

What they have actually found is that if they dress up the policy that they already desire as being something that is for the common good then people will complain less. Something which is obviously true, every orator and politician has known for ever that the more you appeal to peoples’ extant prejudices the more ridiculous the policy you can get them to swallow.

What Chatham House has just done is discover how to produce the propaganda for meat taxes, nothing else. And well done them of course, although quite when Chatham House got into the propaganda business we’re not quite sure.

So, that DECC’s renewables plans entirely up in smoke then

One of the little fables, falsities really, of the DECC’s approach to climate change rests upon just the one number. And that’s what is the price of natural gas per therm going to be off into the future. We could assume that the price will be roughly the same as today. Or it might fall as a result of fracking, or it might rise as a result of supplies running out. But we obviously do need to make a forecast because that’s the only way we can work out whether those damn windmills and so on are ever going to be economic.

So what DECC did was assume that gas prices would roughly double from their current level. In that manner they could then say that those windmills would in fact be cheaper. Not because the windmills are cheaper now, nor because they’re going to become cheaper in the future, but because the gas price is going to double.

They were very insistent about supporting this too. We recall one of their pronouncements being that fracking wouldn’t reduce the price at all. Because it would all be exported we think was the mantra. Then they said, well, maybe, a few percent reduction: look, here’s a report about Cuadrilla’s find which says 3 or 4% reduction in price!

Yes, well, that report was actually about the price impact of just he extra gas find that Cuadrilla had announced as the result of just the one borehole: and that price reduction applied to the entirety of the connected European gas market. Obviously the entirety of the Bowland Shale was going to have a larger impact than that.

But everything, the whole shooting match, the entire strategy of solar, windmills, nuclear and everything, has been based upon that one single number: the price of natural gas is going to double.

DECC’s latest projections assume average gas prices for this year of 47 pence per therm, down from the 62p it projected last year.
It estimates the price will barely rise over the next four years, remaining at just 49p/therm in 2019, and only ticking up slightly to 52p/therm in 2020.
A year ago it had expected prices of 60.3p/therm in 2020, while two years ago it was forecasting they could hit 73.8p/therm.

Ooops! And of course the decline in price is being driven by that fracking that would never affect the UK price. Tight oil fracking in the US has driven down the oil price, to which many gas contracts are linked, and gas fracking has increased the amount of LNG sloshing around the world markets. These price decreases being before anyone’s even considered whatever may be fracked right here at home.

The entire strategy thus needs to be re-examined. Starting with those numbers for what the future price of gas might be.

And of course, this is also why planning centrally of anything doesn’t work. Here it’s obvious that, to put it at its most kindly, people became wedded to a particular analysis and simply did not want to hear of changes to it (less kindly they manufactured that analysis to order). But even when that does not happen, we still end up with a plan which depends upon the assumptions which go into it. Rather than leaving things to market forces, which means that we get a multiplicity of plans, with a multiplicity of such assumptions.

Yes, it’s true, climate change isn’t a problem that entirely pure markets are likely to solve, involving as it does externalities. But that’s why the correct answer is to intervene in the market price, add in that externality, and then still have the markets with their mulitple answers and assumptions. Rather than the monolithic central plan reminiscent of Stalinism. Which has just failed as did that Stalinism, reality having to intrude.

The Overseas Development Institute is as stupid as the IMF

Or maybe they’re being deliberately misleading. Back in May, Sam wrote a barnstormer in The Telegraph refuting an IMF report that called it a ‘subsidy’ when the government didn’t tax oil and gas as much as the IMF would have liked it to. This report was important because the IMF is taken seriously, especially by those who don’t usually find themselves on its side, when it says stuff they like (‘even the IMF’ etc).

Sam made the obvious point that a subsidy is a subsidy and not taxing something is never a subsidy, even if you think we should—even if your model says that it should—tax that thing more to increase social welfare. If it were a subsidy to tax something (like fossil fuels) below the optimal amount, then it would also be a tax not to subsidise something (like basic research) the optimal amount. But it’s not; it’s patently, blatantly, ridiculous and obfuscatory use of language.

We might have thought the issue was put to bed. But here we go again, this time with the Overseas Development Institute’s new report, which tells us:

While other nations have responded to the drop in energy prices by reducing fossil fuel consumer subsidies, the UK has reduced taxes on fossil fuel production, increasing subsidies to fossil fuel producers.

The industry pays £30.1bn in total taxes, including downstream levies like fuel duties, but since this is not £35bn or £40bn, it’s being ‘subsidised’ according to the IMF and ODI.

It gets onto actual things we might call ‘subsidies’ later, and they are as piffling as you might expect, given how they are buried:

The International Energy Agency (IEA) estimates for budgetary support for R&D to all fossil fuels in the UK were $76 million in 2013

Note the units.

In addition, the UK government has committed to providing significant direct support for the development of CCS. The largest commitment is for the $1.6 billion for the Commercialisation Programme, although this has not yet been disbursed.

OK, this is a real subsidy, and of a significant size (but nothing compared to oil and gas tax contributions!), but you might note that (a) it’s not been paid yet; and (b) it’s specifically tied to abating emissions!

So this is a non-story. The real story is ‘the energy industry pays a large amount in tax, slightly lower this year, but probably still enough to cover its externalities, and even if it wasn’t it’s certainly not a “subsidy”‘.

And the ODI are as stupid as the IMF.